AS SPOT GOLD PRICES continue to trend higher, the race is on amongst
the biggest gold-mining firms to re-stock their depleted reserves.

Three of the larger gold mining companies have just said they're going to
spend record sums trying to find new gold-in-the-ground. Picking the winning
stocks - and selecting the junior miners about to receive fresh takeover bids
- could pay handsomely.

But don't forget the bigger picture as you chase short-term M&A profits.
Because "Route One" to growing proven and probable reserves is most likely
to deplete total exploration budgets in 2008 and beyond.

That's only going to support the price of physical gold itself.

This week, AngloGold Ashanti (AU) - the world's third-largest gold producer
- said it plans to hike exploration spending by 60% in 2007. The South African
miner wants to diversify away from its home base, where total gold output has
now sunk by one-half inside 10 years.

Randgold Resources (GOLD), another South African miner, says it's put a team
together to scour the central continent for new reserves. It added one million
ounces in 2006. Now the CEO, Mark Bristow, has appointed Rod Quick - who recently
led the discovery of 200,000 ounces at the Tongon project in Ivory Coast -
to lead his 'African Hunting Team'.

Over the next six months, the team will visit at least eight countries including
Sierra Leone, Liberia, and the Democratic Republic of Congo - three countries
just emerging from bloody civil conflicts.

"Some of these countries are showing potential to change," Bristow told MiningMX.com
- and the return of fair government alongside law and order should help make
gold mining feasible once again.

But higher-risk doesn't necessarily mean lower cost for gold mining companies.
Following a $10 million feasibility study, Randgold's Tongon project in Ivory
Coast - where the rebel leader, Guillaume Soro, has just been named as prime
minister - is due a final "go ahead" decision at the end of next year. The
capital cost of developing the mine, according to figures published by MiningMX,
would then work out at around $625 per ounce.

"The pioneer junior companies are already in these countries," says Bristow. "We
are talking to them and meeting the governments and filling in our geological
information box.

"We would like to believe there's merit in us motivating to be the partner
of choice because if [the juniors already there] do a business combination
with us, their shareholders will get a better exposure to leverage rather than
the bigger guys where they'd just be absorbed."

Then there's Newmont (NEM), the world's second-biggest gold producer. Now
subject to daily rumors of a takeover bid from Barrick Mining (ABX), the world
No.1, Newmont added 10 million ounces to its reserves in 2006. The company
said this week it wants to keep growing reserves at that rate in 2007 and beyond.

"We would like to do more deals than we have done in recent years," says Patrick
Highsmith, global manager for exploration business development.

"It can be private placements, joint-exploration alliances and, if assets
are for sale, that too."

Assets for sale, of course, have always offered "Route One" to growing gold
mining reserves. Non-ferrous exploration hit a record $7.13 billion last year,
according to the Metals Economics Group. But merger & acquisition spending
in the gold sector alone was nearly three times as much according to analysis
by Merrill Lynch.

"It has to be a multi-pronged approach if you're trying to get 10 million
ounces of gold a year," says Highsmith. "We're a bigger company now and we
need to find new reserves faster.

"We are talking to a lot of juniors."

Taking over a junior - as opposed to talking to a junior - usually means a
sharp drop in the combined exploration budget, however. Junior miners accounted
for more than half the world's total non-ferrous exploration budgets in 2006,
says MEG. But over the last ten years, post-merger budgets the following year
have sunk by 20% on average.

If you're looking for the bull market in gold to run beyond the end of 2007
- and Blackstone Merrill Lynch this week forecast that we're only mid-way through
a rising commodities market seen once every 50 years - you may be well advised
to include physical gold bullion in
your portfolio, alongside your gold mining selections.

The rush to find new gold reserves is likely to cut future gold production.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.

BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.